This news really shouldn’t come as a surprise because it’s been an open secret that Trump would like to divest of the property which has been a perennial money loser and has quickly lost its luster as new, bigger and more popular venues have come online.

I could see this property fetching very little – similar to what recently happened with the Resorts property that was still sold for only $35 million – even after opening a $110 million tower in 2004 and undergoing a refinancing worth $360 million in 2007. Resorts sold for 1/10th of its value in less than 3 years.. A few years ago Trump Marina was valued around $400 million and from what I’ve heard is in worse shape than Resorts – both cosmetically and physically.

Would $25-30 million be too far fetched?? Depends on how desperate Trump is to sell the property.

One idea that could definitely raise interest in the property is combining it with MGM Resort’s small parcel which sits just to the north of Trump Marina that is also on the block. The only question remains is who would be willing to put that much of an investment into Atlantic City at this time.

andrew@alconic-inc.com

Supposedly the deal that Trump is looking for would swap the land under the property and the partner to put up the money for renovations and an addition adding about 600 more rooms to the property.

The type of partners Trump Entertainment Resorts is looking for: Planet Hollywood or Hard Rock Hotel

Both are popular brands that have wanted to open a Atlantic City Casino outpost for awhile now (both have restaurants in AC, but not an hotel resort based on the brands)

This could be a good sign that Trump is finally getting serious about Atlantic City and putting his money where is mouth is; you know he’s trying to really make something work if hes willing to share the name of his property (or even possibly replace it) with another brand name.

Bravo to Donald Trump finally toning down his ego.

andrew@alconic-inc.com

Another day, another casino in the sights of the Starwood Capital Group.

What’s going on here?

It’s interesting to watch how Starwood Capital has shown so much interest in Las Vegas casinos over the past month or so – the past few years even if you consider their initial bid for the Riveria on the strip.

Although its all rumors at this point, Bloomberg Business Week has a story about Starwood Capital’s (and Colony Capital’s) interest in purchasing the Rio casino from Harrahs. Harrahs has been looking to divest the property since they purchased the Planet Hollywood and is looking for interested bidders. Harrahs purcahsed the Rio in 1998 for $888 million, and according to the Business Week article – the property is only worth $500 million now.  

So why are all these private equity firms looking to get into the casino business? Its interesting to watch Carl Icahn place a bid on almost every project in Atlantic City & Las Vegas that is having financial difficulty, Starwood Capital’s interest in the Riveria and now apparently the Rio, along with Colony Capital’s current ownership of the Hilton Las Vegas and Atlantic City. Why?

I’d think that it would be too much trouble to go through the gambling licensing procedures for a private equity firm to even consider dabbling in this, but if you look at the history of these three firms – they have gambling in their blood.

Colony Capital has owned the Hilton in Las Vegas since 2004, the Atlantic City Hilton since 2005 and Resorts International since 2000.

Carl Icahn purchased the Sands casino in Atlantic City in the early 2000′s but quickly sold it to Pinnacle Gaming, but now he owns the unfinished Fontainebleau and the Tropicana in Atlantic City

Barry Sternlicht, from the Starwood Capital Group was probably the first out of these three to get into the casino business with his purchase of ITT-Sheraton which included Caesars World in I believe 1998.

Its interesting to see what everyones intention will be – its known that casinos are great for their free cash flow – something a Private Equity firm loves, but its obvious that some people look at the purchase of a casino as just a passing investment – similar to how Carl Icahn has looked at his investment in the Sands in Atlantic City and possibly how he will look at the Fontainebleau once the economy picks up.

andrew@alconic-inc.com

The sale of the Trump Marina to the New York firm Coastal Development for a re-branding into a Margaritaville Casino Resort has been called off. Like can be expected, both sides have disputed what actually caused the deal to be called off – but one thing is for sure, Coastal Development probably wanted to pay less than the $270 million that they initially committed to – which is less than the $317 million that the deal was initially announced at in early 2008.

Its obvious that that property is not worth even $200 million – especially in this market. With the Tropicana sold to Carl Icahn and partners in exchange for $200 million in debt – its really no surprise to see the Trump Marina fall through at a $270 million price in actual cash/debt. The Tropicana is in much better condition and is a much larger casino that Trump Marina.

Its a big unknown as to what will happen to the Trump Marina – as well as the other two Trump properties in Atlantic City. A few weeks back it was discovered that Trump Entertainment Resorts had hired an investment bank to shop around the casinos for a sale and Donald Trump himself has also made it clear he would like to make a play for his casinos again. Although I really question his motives – the casinos were ran into the ground under his watch twice (they filed for bankruptcy twice) and only after coming out of bankruptcy for the second time did he step down – which apparently didn’t help the casinos at all since Trump Entertainment Resorts filed for bankruptcy a third time within the last year.

Coastal Development has stated that they are still interested in the Trump Marina property – as long as the price comes down, and if the Trump Marina property doesn’t work out, they are interested in opening elsewhere in Atlantic City.

As for Donald Trump, if he were to purchase Trump Entertainment Resorts again, I think it would be the companies death kneel because he has not proved himself to be a good casino owner/operator. I think the only way to get the Trump Casinos back on their feet is to completely re-brand them – give them some type of theme that’s more Vegas-Like. While the penny slot playing seniors may be upset at the move to remove the Trump name, unfortunately they are not the ones the casinos need to attract.

andrew@alconic-inc.com

I touched on this in my last article about the Tropicana, but I thought it was worth mentioning again because unless you read closely, every newspaper article makes it sound like Icahn automatically gets the property once it reaches auction in bankruptcy court – that’s not the case.

Carl Icahn does have a contract with the overseer of the property to purchase the property, but its pending the auction and if he is the highest bidder which will determine its next owner. Currently Icahn is the highest bidder – but remember.. The auction hasn’t even started yet.

Icahn’s bid doesn’t seem to include any actual cash – its simply a reallocation of the existing bonds he owns, being put toward the purchase price. If someone does come in with a higher bid – Icahn also has the potential to put up cash, or use more of the Tropicana’s bonds which he supposedly owns over $1 billion worth.

The only other bidder who still has publicly voiced his interest in the Tropicana property is the Cordish Companies. David Cordish originally was willing to bid $750 million through a combination of cash and financing for the property, or $525 million all in cash – but apparently a combination of cold feet and the continual declining of the real estate market put that bid on hold. It’s very possible that he may come to the table during the auction.

While I’m no expert in bankruptcy auctions – and especially complex auctions such as this one, it does seem as though Columbia Sussex (the former owner of the Tropicana) will lose their entire investment in the property. When the property was first put on the market in late 2007 it wasn’t intended to go into bankruptcy court, but due to the recession and the bidders placing low bids or dropping out – bankruptcy’s hand was forced.

Its still unclear what Icahn will do with the property if he ends up being the winning bidder; in the past he has simply flipped the property for a higher price down the road (eg: the Sands in AC to Pinnacle Entertainment). Although Icahn’s continual interest in MGM Mirage, where he’s essentially doing the same thing with MGM as he is with the Tropicana – but on a larger scale – may signal other plans.

andrew@alconic-inc.com

What his intention with the property does after that is still a mystery for now.

One of the main reasons that Icahn has been pursuing this property is his current investment in the existing bonds on the property, possibly totaling more than $1.4 billion dollars. If I understand the arrangement correctly, if he ends up losing the property to a higher bidder – he can lose most of that money, whereas if his bid ends up being the high bid he’ll end up putting out even more money, but apparently he feels like the property has the potential to make back all the money he’s placed in it so far.

It’s also interesting to note that Icahn is doing the same financial maneuvering with MGM Mirage; that is, hoping to force the company into bankruptcy where he’d e able to pick it up on the cheap since he holds a great deal of MGM Mirage’s debt. I think he will have a harder time accomplishing this with MGM because there are a lot of properties involved and MGM Mirage is still a very reputable and sought after firm – whereas the Tropicana is becoming the ugly stepchild.

There still is the potential for another bidder to come forth and offer a higher price, but apparently since Icahn and his partners already hold the bonds they will be able to put that toward the final bid. It seems to me that even if Icahn and his partners were to offer more for the property, it would just go back to them to pay off the outstanding bonds. I have to admit I’m a little confused by the financial structure of this deal – hopefully it will become a little clearer once the transaction is finalized in the next few weeks.

Most likely Icahn and his partners will not hold onto the Tropicana as a long term investment, perhaps they may wait a year or so until the economy comes back but if his investment in the Sands offers any indication, he will sell it off to another firm which will most likely have to do a major renovation to bring the property up to the rest of AC’s standards and just make the property more relevant in the marketplace.

Personally I’m hoping that the Tropicana goes under a complete redesign and comes out as a new casino with a new name. If anything the Tropicana name is tainted because of the problems they’ve had in the past two years and needs something brand new to bring it out to the forefront of the boardwalk casinos.

It is very interesting to note that it seems as though all the other bidders who in the past have bid for the Tropicana have suddenly dropped out. It’s definitely not because the price is too high (the minimum has been set by the $200 million bid from Icahn, but perhaps its due to Icahns ability to convert the other debt into a greater bid, if he holds $1.4 billion in Tropicana debt, the real “minimum” may be as high as $1.6 billion, which is a totally unreasonable number for the property – even in an up market.

andrew@alconic-inc.com

That recently happened with Dubai World and MGMMirage with the CityCenter Project in which Dubai World is a 50/50 partner with MGM, in addition to part owner of the CityCenter project, Dubai is also a 9.5% owner in MGM Mirage as well.

Dubai World has sued MGM Mirage to limit its exposure in having to spend more money on the project, which is more than a billion dollars over budget and thats even after a number of cost cutting moves have been implemented. Dubai World is looking to not have to spend any additional money ont he project – putting an expected payment to MGM Mirage in uncertainty as well as possibly causing MGM Mirage to default on its debt covents.

What a major turn of events for MGM Mirage!

Its obvious that the economic downturn is hurting MGM tremendously – the majority of their business is centered ont he Las Vegas strip, and the CityCenter Project is considered the largest construction project in the United States today (and even prior to the downturn). Their stock has lost over 95% of its value, and honestly – I wonder if it can go down further. MGM seems to be in a very scary position right now – their only recourse seems to be selling some additional casinos, but then the question arises – who will purchase a casino (Even a profitable one) in this economy?

I wonder why Dubai World is suing MGM – what is their motive? It seems to me that forcing a company to go into default, a company that they own almost 10% of, including its largest property which they are 50/50 partners in would almost be like shooting yourself in the foot. Right? Maybe I’m missing something, or maybe Dubai World is hoping to make a play for MGM Mirage on the cheap if it ends up going into default and filing for bankruptcy. Thats a very good possibility.

MGM’s issue was created by having tied up all their capital and debt into the CityCenter Project – a project which isnt open yet, but when it will later this year, will open in quite possibly the worst economic climate in decades, a downturn that is being amplified in Las Vegas area because of the cutback in corporate meetings and overall decline in travel to entertainment destinations such as Las Vegas. If MGM is able to get out alive in its current state (which is looking less and less likely) they will still be a powerful force in the gambling industry, but the question is – how can they do it?

5 Properties that MGM Mirage Might/Should Sell

1. Mirage - it was built as the sister resort to Treasure Island which was just sold to Phil Ruffin. This property sticks out to me as the most likely to be sold immediately.
2. Borgata - MGM has a 50% interest in the Borgata in Atlantic City, and a few weeks back – I thought MGM would be crazy to sell their interest in it – but times are desperate, and Boyd does have some cash laying around since they stopped constructing the Echelon Place project last year
3. Excalibur - this place is so old and so out of place, it may be difficult to get rid of it, but it doesn’t really keep up with MGM’s high end, luxury, trendy
4. Circus-Circus - This property and the land surrounding it was supposed to be a mega resort (resembling CityCenter) with Kerzner International. At the time the casino was to be completely redeveloped and added into the larger project. Since MGM has stated they want to sell the Kerzner joint venture land, I could see Circus Circus going along with the land. but who is going to be buying land in Vegas these days anyway?
5. Any of their non-MGM Grand properties in Reno or Jean, Nevada. MGM Mirage is really a Las Vegas company and that’s where over 75% of their land and assets are located, except for the MGM Grand projects they’ve built in Foxwoods (CT), and Detroit none of the other properties really seem to be up to par with MGM’s standards. The only saving grace these properties have is their primary clientele being locals, having less of a reliance on tourism from the rest of the country unlike Las Vegas.

I still like MGM, and I think they are a great company – they have some really great properties that made Vegas famous and the CityCenter project will be an amazing asset when its completed. In fact, Dubai World agrees, they still stated that they expect to make many many times their investment back once the CityCenter project goes online.

And thats what I just don’t understand – why hurt your own project?

andrew@alconic-inc.com

The way the articles were written made it sound as though Columbia Sussex – the owner of Tropicana Entertainment – was doing this as a way to convince the trustee of the Atlantic City property they were the best bet for the property to continue in the future. None of the news articles (or myself) even considered the Tropicana Las Vegas property.

The Tropicana Las Vegas property is almost in worse shape than the Atlantic City property, and since they lost the Atlantic City property, Tropicana Entertainment had to file for bankruptcy. But from a story in the Las Vegas Sun, it sounds as though the goal of the image rebranding is meant for the Las Vegas property first and foremost, and if they are able to gain control of the Atlantic City property – it would be expanded to include that one as well.

I’m not too familiar with the Tropicana Las Vegas – I’ve never been there, and its rarely in the news; it doesn’t have any popular clubs, and sorta falls into the same categories as the Flamingo, Excalibur, Circus Circus and other older properties.

The rebranding makes of the Vegas property makes alot of sense, since there was a very constant return customer who enjoyed what the Tropicana had to offer in the past – its apparent that Columbia Sussex treated the Vegas property just as they treated the Atlantic City property by not investing much in its upkeep and maintenance. There was one major difference between the two properties through – the Las Vegas Tropicana was always due to undergo a major renovation – a new hotel tower and expansion of the casino floor, where as the Atlantic City property didn’t need to go through that since it just finished its own expansion of The Quarter and the new hotel tower.

I wish that the newspapers in the Atlantic City area (where I hear most of the “news” about the Atlantic City Tropicana) would take into consideration the Las Vegas property a little more than they do now. Right now the tonality of the articles always put Columbia Sussex in a bad light and make it seem as though the Atlantic City Tropicana was their only property and Columbia Sussex has no experience in casino gaming. While that may be the case – when they bought Aztar they didn’t have any casino gaming experience – but they are trying, and the fruits of their labor will be seen in the Las Vegas property – but only time will tell what will happen to the Atlantic City property.

Oh – and in case your wondering. No new news about the Atlantic City Tropicana going into auction..

andrew@alconic-inc.com

Today it was announced that the judge overseeing the resort is unable to come up to a deal with the Cordish Companies – although they are still negotiating – and wants to put the property up for auction. The problem with that is no one really knows how much the property will fetch at auction, leaving the creditors on the property nervous their loans will not be paid and the holders of the loans – Columbia Sussex – nervous that the problems of the Tropicana may pull them under, even though they have no control over day to day operation, or any say in the selling process.

What a predicament!

I also read today in my local paper – the Asbury Park Press - that Columbia Sussex has hired a branding expert whose job it will be to rebrand the Tropicana as a low-cost, yet high service operation. The hope is that those who are being hurt by the economy will not be intimidated by the high costs of a room in Atlantic City or a $75 a plate dinner in the casino’s restaurants. It doesn’t seem to mean any renovations or major physical changes to the property – only an advertising campaign.

It’s a risky proposition, not the least because “low cost, yet high service” is almost a contradictory statement, but also because they risk the permanent loss of customers who are going to the Tropicana and expect to be in a luxury resort – not an aging, yet low-cost resort similar to the Golden Nugget is in Las Vegas. It also risks lowering the revenue per customer – requiring an even greater amount of customers to visit the casino/hotel, book rooms and eat in the restaurants in order break even or even show a profit.

It’s not too often that you hear of a company that is looking to cheapen an existing brand, most of the time thats seen in the retail industry for a particular product, a clothing brand, or a food brand – rarely is it ever seen in a company whose brand is contained within its walls and real estate.

What happens when this economic downturn reverses? Is the Tropicana suddenly going to go upscale again? Will prices rise while the hotel and casino’s interior stays as-is? There will always be a market for a low-end casino, not everyone wants to (or is able to) go to The Borgata or Revel (once it opens) every time and spend their money on higher-rate rooms and expensive restaurants, but at the same time the last thing anyone wants is the Tropicana to become a casino version of a K-Mart or Dollar Store.

The company that Columbia Sussex has hired is Hornal Anderson – a marketing company located out of Seattle that has come big customers, T-Mobile, Microsoft, Weyerhaeuser to name a few, and it remains to be seen if the court appointed trustee for the Tropicana will even allow Columbia Sussex to take over the day-to-day operations of the Tropicana thus allowing the rebranding. Columbia Sussex has seemed to go through a regime change – primarily motivated by the loss of the Tropicana and the damage its done to the company – but it would have to go through the entire re-licensing process again, causing more delays, and you know that the re-licensing proceedings would be worse than when they first lost their casino license; Columbia will have their work cut out for them.

One thing that iss for sure is as every day goes by the situation for the Tropicana gets worse. Even though the property is in full operation, its in stand-by mode. Meaning if a pipe breaks, it will be fixed, but ongoing construction progression that occurs in almost every major venue such as the Tropicana has been stopped. After my experience in the Trop a few weeks back – there is alot of work to be done. I hope that the Cordish Companies are able to make a deal to purchase the property soon, they have committed a certain amount of money for immediate renovations and it needs new life brought into it, otherwise it will end up like the Hilton Atlantic City to the south.

It’s about time!

MGM has owned the land next to the Trump Marina for years – and unless its developed as an addition to the Trump Marina (soon-to-be known as Margaritaville Casino) its almost worthless. There is only three ways to access the property, via boat, via Huron Ave (after practically driving through the Trump Marina structure) or Brigantine Blvd – requiring those coming from the North to drive through the Harrah’s structure

.

In essence it’s a very secluded property that requires you to essentially drive through a competing casino – and would be great for a park or the owners of the Trump Marina, or perhaps a luxury condo or apartment development.

One of the biggest drawbacks to purchasing the property (besides it being so secluded) is its location right on the bay – the amount of permits and variances that would be needed to develop property that close to the bay – especially in NJ which recently made it harder for any development to be built within 400 feet of a waterway.

I think we’ll end up seeing this property be sold to the future owners of the Trump Marina as an insurance policy for future growth on the property – either a second hotel/casino or a huge addition to the existing hotel/casino.

In regards to the LVRJ’s speculation that MGM-Mirage is looking to get rid of Borgata and perhaps the 72 acres next to the WaterClub where the MGM Grand Atlantic City was scheduled to be built – I’d be very surprised to see MGM sell both properties. I could see the sale of the Borgata’s 50% interest – Boyd Gaming is the company really behind the operation – MGM is pretty much just there for the money backing – the MGM Grand property is too large for MGM to give up.

A Lot of people love to predict the demise of Atlantic City, with casinos opening in PA, Philadelphia, New York, Delaware and CT – a lot of Atlantic City’s player base is being eroded; what a lot of folks fail to realize is that those clientele were the same group who only went because they were given $30 in free slot dollars and a coupon for a free buffet. That’s not where the money is in Casino/Resorts. The Borgata showed that when after they opened they had the largest quarter over quarter profits – until this economic downturn of course – and is unique because the Borgata does not allow casino tour buses to drop off at the property. Additionally, the Borgata has some destination places within the property – restaurants owned by celebrity chefs and clubs which attract the celebrity set week after week.

Atlantic City isn’t going anywhere – and MGM Mirage would be foolish to sell the 72 acres next to the Borgata. They’ve owned the land this long, and if they are looking to raise cash – they are better off selling land in Las Vegas or perhaps some of their casinos in Las Vegas and surrounding areas (Mirage? Rail Road Pass?).

andrew@alconic-inc.com